Superannuation guarantee war looms as pension reliance grows

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More Australians will be reliant on pensions to fund their retirement unless the Australian economy rebounds quickly from the recession.

The Association of Superannuation Funds of Australia (ASFA) predicts 41 per cent of people reaching retirement age in 2023 will be fully self-funded, down from 43 per cent before the pandemic.

“This means about 5000 more people will be relying on government support through the pension or part-pension than previously forecast,” reports The Age.

ASFA chief executive Martin Fahy said the reduction in expected numbers of self-funded retirees underlined the importance of maintaining the planned increase in the superannuation guarantee from the current 9.5 per cent rate to 12 per cent.

“ASFA projects that moving Australia’s superannuation system to 12 per cent superannuation guarantee would see half of all retirees self-funded in their retirement by 2050,” Mr Fahy said.

“The move to a 12 per cent superannuation guarantee is now critical for pre-retirees, and for generations to come, to achieve a dignified retirement.

“If today’s young people are to avoid ending up on not much more than the Age Pension, every single dollar contributed to superannuation counts.”

A major conflict – dubbed the Super Wars by Nine – is brewing over the guarantee increase.

On one side, business groups, the Australian Council of Social Service, the Grattan Institute think tank, the Reserve Bank, many economists and up to a dozen coalition MPs oppose the increase, worried that forcing employers to contribute more to their employees’ super funds will deter wages growth and hinder economic recovery.  

The Labor Party, superannuation funds, former treasury secretary Ken Henry and former prime ministers Paul Keating, Kevin Rudd and Malcolm Turnbull say wages may not rise regardless and the guarantee increase is crucial to ensure Australians have adequate retirement funding.

Industry Super chief executive Bernie Dean claims the very existence of super is at stake.

ASFA says Australians needed the following amounts in super to be heading for a comfortable retirement:

  • a 30-year-old should have $61,000
  • a 40-year-old $154,000
  • a 50-year-old $271,000
  • a 60-year-old $430,000.

These amounts are to achieve a comfortable retirement at age 67 when singles should have $545,000 in retirement savings and couples $640,000, it says.

“That equates to an annual pre-tax income of $65,000 with investment returns at 6.7 per cent,” the Herald Sun reports.

“A comfortable retirement enables a healthy retiree to have a good standard of living including top level private health insurance, travel on domestic and international holidays, own a reasonable car and have a good internet service and mobile phone allowance.”

Currently, the full Age Pension for a single person is $24,552 a year.

Surprise changes in the recent Federal Budget aim to reduce unnecessary fees from multiple super accounts. Employers are now required to find your account through the ATO and pay your super into your existing account unless you choose another one.

There are also plans to introduce a new comparison tool YourSuper, which ranks funds by fees and returns.

Superannuation was aimed at supplementing the Age Pension, providing a more comfortable lifestyle for retirees and easing pressure on the budget.

But increasing the rate of compulsory superannuation will further weaken the economy at a time when it is ailing because of the effects of the pandemic.

Be super wise (Source: Sydney Morning Herald)

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Written by Will Brodie

43 Comments

Total Comments: 43
  1. 0
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    These amounts are to achieve a comfortable retirement at age 67 when singles should have $545,000 in retirement savings and couples $640,000, it says.

    Yep dream on baby………….

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      You are right! That sum assumes a continuous employment history of 40 to 45 years with an ever-increasing salary. Sure…

    • 0
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      Exactly Elizzy gone are the days of your post…total and utter rubbish to assume either of these things occurring now days….if your a pollie for a number of years those figures might come into play or an over paid CEO….otherwise it’s an impossible dream.

    • 0
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      Exactly Elizzy gone are the days of your post…total and utter rubbish to assume either of these things occurring now days….if your a pollie for a number of years those figures might come into play or an over paid CEO….otherwise it’s an impossible dream.

    • 0
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      i achieved double that amount, my 2 sons, halfway through their working lives are both nearly there. Not only possible but easily achieved with careful planning and having a good knowledge of finance principles.

    • 0
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      MB100D

      Well are you not, your a lucky duck!!!!!

    • 0
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      Can’t agree Panos. I am certainly on track to achieve the recommended amounts. But it is not without sacrifice. Its all about choices. We all make them and then have to live by the consequences.

    • 0
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      Yes panos, I guess Luck had a lot to do with my situation.
      Lucky I was born in Australia.
      Lucky I had driven parents that instilled in me the right morals and discipline.
      Lucky I had the intelligence to apply myself at school.
      Lucky I pursued continuous education in my chosen field and in particular financial theory.
      Lucky I was able to secure well paying work, sometimes 2 at the same time.
      lucky I had reasonable health most of my life, not so lucky the last 10 years. (Cancer, heart disease, kidney stones.) But with all that the I have found the health system first rate.
      So yes I’m a Lucky Duck.

    • 0
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      whether one achieves a ‘comfortable retirement’ and the $545,000 at 67 depends on current working status, income and where in the spectrum that income is situated. Older unemployed may appear to be on track with $430,000 at age 60 but then living off savings earmarked for their retirement until retirement at 67 are not going to find themselves in a ‘comfortable retirement’ without some financial gymnastics.

      Those on average (mean) incomes at retirement age of course will have no such trouble while those on low incomes are unlikely to ever achieve that level of savings in current dollars no matter how hard they save. The odds of the 50% of workers on below median incomes will hope to avoid misfortune and make sacrifices, while those on median or better might get there if life throws no curve balls like prolonged unemployment, chronic illness, care for family etc.

  2. 0
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    Suprising that this article doesn’t suggest ways to increase a super balance, such as salary sacrifice and voluntary contributions, etc. Pretty much impossible to get near the $545,000 or $640,000 otherwise. As for any suggestion that the 12% move should be under question from a government that has encourged people to use their super early..

  3. 0
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    Would you like to explain the scenario for a worker who is working on casual rates when the employer feels like giving them some hours and for a worker in the gig economy. These conditions apply to a third of the working population today.

    • 0
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      Exactly. Those working on those employment terms haven’t got a chance. Work Choices was loaded all one way in creating that opportunity for employers to have it all their way.

  4. 0
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    The amounts stated are likely to be based on current incomes. I started working in 1977 when income was $5,000. This increased slowly to $30,000 in 1989. Between 1989 and 2018 my income fluctuated between $45,000 and $65,000. This meant that growth in Superannuation funds was slow. This, coupled with a three year period of significant negative growth between 2000 and 2005 realised a Superannuation balance of $210,000 in 2018. Obviously this figure is well short of the figures in the article. I am currently 63, unemployed apart from some contracting I do on a self employed basis. I live a modest life with no holidays but I can manage. Many in my age group are not so fortunate and will have a heavy reliance on the pension just to maintain a very modest existence. Quoting figures that are unrealistic for the average person is counter productive. I will also state that I was fortunate enough to accumulate superannuation from when I started working and not when it became compulsory some time later.

  5. 0
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    Would you say the Morrison and Hockey have encouraged people to take up major superannuation investments.They are so thick i very much doubt they realize the long term damage the have done.

  6. 0
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    This article assumes a return of over 6%, at a time when interest rates are almost zero and likely to remain very low for years to come. Also companies cutting dividends. IMO Super fund investments will be returning about 2% this financial year and for a long time to come.

    • 0
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      It does not reflect interest rates alone, but investments in growth commodities.

    • 0
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      The stocks retirees invest in are all falling in value. Banks and Telstra have lost more than the total dividends paid out over the past 5 years. Retirees will struggle to get anywhere near 5% in the current environment unless they happen to be investment gurus – which one should not have to be to make a decent living after 50 years of work, paying tax and saving.

    • 0
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      We are entering a deflationary period and although the super industry love the $42 billion in fees and charges it won’t continue.

      The full aged pension, concessions and some savings for maintenance and new appliances if needed is looking jolly good compared to saving for decades and missing out on all the benefits of the welfare system.

  7. 0
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    Is there an echo in this room ?

  8. 0
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    We’re so lucky to have the LNP in charge.

  9. 0
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    Join the public service. They already get between 12 – 17% super. Unfair, YEP.

  10. 0
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    Sometimes I wonder re the sincerity of the government in spruiking superannuation for the following:-
    (1) The tax on super contributions already take 15% of your money going in.- It should be 0% for those on minimum wages
    (2) The superannuation funds make a hefty skim your super even on bad or lean years and in the OECD, Australia has too high fees! which they hide very well with a lot of fluff – I have seen countries where the returns on super invested is a fixed, say 6.0 -6.5% year on year no matter how the economy or stockmarket performs.
    (3) With the gig economy and the casualization of labour in Australia how do you get a steady income and get your employer to contribute to your super? There should be severe penalties for employers who cheat employees of their super contribution when the latter are entitled to it.
    (4) It will be interesting for the actuaries to calculate the amount of super that can be accumulated for someone on a ‘permanent’ job on minimum wages from age 18-19 till retirement and see what numbers they come up with, based on current contributions and current historical returns from an average industry superfund.

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